Today, we turn to our war correspondents for dispatches from the front lines, and we find an important insight:

"Learn to live with inflation," begins the headline in the Financial Times.

The FT refers to England's central banker, Mervyn King, who says inflation - already running hotter than at any time in 10 years - is going to heat up even more.

In America, the news is not so different. "Globalized Inflation," is a headline in the Wall Street Journal, finally catching on. Input prices are running up at nearly twice the rate of the official CPI figure. Prices for goods imported from overseas are rising nearly four times as fast.

In Argentina, meanwhile, the inflation rate is officially more than 8%…unofficially, it is probably twice that high.

And across the Rio Plata, Horacio Pozzo reports on "Brazil and Inflation: the struggle continues." Inflation in Brazil has just registered its biggest monthly gain in 12 years.

It looks like inflation is winning, in other words.

It looks like Ben Bernanke may be "regretting" his rate cuts, says former UK chancellor, under Maggie Thatcher, Nigel Lawson. Bernanke panicked in the face of the credit crunch and cut the key rate from 3.25% down to 2%. Deflation was the greater enemy, he believed. The Europeans saw it differently. The ECB held its rate at 4%…and now says it may raise them. It's beginning to look like the Europeans were right.

On every front the news is the same - prices are rising more steeply than they were a year ago. Oil rose to $136 yesterday. Gold, sniffing the fear of rising consumer prices, rose $6 to $893.

Oil has been leading the charge for inflation. And T. Boone Pickens says it not only has the high ground…it'll go higher. He says global oil production has peaked out at 85 million barrels/day while demand is running about 86.4 million barrels. The price will rise more, he believes, until demand for oil falls to equal the available production.

Of course, Pickens is "talking his book." He's heavily invested in oil and may want you to be too. But he could be right.

Inflation is gaining ground. Defensive positions are giving way…the forces of price stability (to say nothing of deflation) seem to be falling back. So far, the retreat is mostly orderly. But orderly retreats are hard to pull off. The retreating general is no longer master of the field. He takes what he can get. And what he gets, often, is a rout - when his troops panic. That's when the casualties really mount up.

We are talking here of a different kind of war. It is a weird conflict…with some remarkable features. For one thing, even though inflation is clearly winning…the U.S. Fed is still fighting deflation, not inflation. The Fed's key lending rate - at 2% - is barely half the official U.S. consumer price inflation level, last reported at 4.2%. But that 4.2% requires a torture chamber of number crunchers who twist and stretch every figure. "Seasonal adjustments," they call them. "Hedonic pricing," they add. As to the former, the seasons never seem to change. Bad raw numbers always seem to get better. As to the second, it is more a matter for metaphysicians than for economists. A computer may cost $1,000 one year. Next year, the statisticians may put the price down to $500 - even though a customer would still have to pay $1,000 in the retail shops. Why? Because 'it's a better computer,' say the water-boarders. If they think it is twice as good, they imagine that the price has been cut in half.

We are not here to quarrel with the thumb-breakers. We are here at The Daily Reckoning headquarters for enlightenment. We read the news headlines. We study the figures. We pore over the opinions, ideas, crackpot theories, and hare-brained formulas. We get down on our knees too…and spend hours in drunken meditation, calling on the gods for inspiration…or luck.

And where does it get us?

We're never quite sure.

The problem with this conflict is that it ranges over too broad a territory. A monetary policy that might be suited for one area is completely wrong for another. As the WSJ noticed, inflation is globalized now.

But USA Today finally noticed something too. "How rising home values and easy credit put your finances at risk," was a headline in yesterday's paper. The trouble was - Americans were given too much credit. Now, their backs ache and their legs buckle under the burden of it. True to his claptrap economic theories, Ben Bernanke is trying to fight a downturn in the only way he knows how - by giving them more. Not only that, but as we pointed out yesterday, they've built a life for themselves that is at odds with modern economic reality. T. Boone Pickens may be right and he may be wrong. But even if he's wrong, he's probably not too wrong. The days of cheap oil are over. And the days of living in big houses far from job centers, and driving big cars to get work, are probably numbered too. The best thing Americans could do is to adapt to the new situation, as quickly as possible. Which is what they're doing. They're driving fewer miles. Many are taking a "stay-cation" this summer, where they leave the family car parked in the driveway. And Ford had to put the brakes on an SUV plant, closing it down for nine weeks because of weak sales.

Bernanke is fighting the last war, not this one. He should have asked us first. You can't reflate a bubble. You can only blow up another bubble. Bubble money moves fast…from one opportunity to the next. It doesn't have any loyalty. It carries no passport. It says no pledge of allegiance and wears no flag on its lapel - not in today's world. So, when the Bank of Ben Bernanke fights a slump, with more and more credit, what happens? The money gets on a plane and goes into the NEXT bubble, not the last. And the next bubble is not in U.S. assets. It's in commodities, food, fuel…art…and gold.

It is also in emerging markets.

Ah yes, dear reader, the globalization street goes both ways. For 15 years, emerging markets helped hold down prices in the developed world. But now, the American consumer looks for the next truckload of cheap imports from Asia, and gets run over by a tanker truck carrying $4-a-gallon gasoline.

The Fed puts out more money and credit…which is spent on oil and other imports. The money ends up stimulating, not the economy of the United States of America, but the economies of the exporters. The Fed, in other words, is providing a monetary policy for China…for Russia…and for the Gulf States. Unfortunately, it's the very policy they don't need.

Why?

Because their economies are already burning white hot. Prices are rising fast. Emerging markets, at purchasing power parity, are now providing 70% of the world's growth. No wonder they're gobbling up the planet's resources. And they're piling up profits. They need to cool off…not heat up. When the dollars arrive in, say, China, the Chinese have to buy them up - creating more of their own currencies to buy them with. They end up with enormous piles of foreign currencies - mostly dollars. A chart of foreign exchange reserves shows them more than tripling since 2001.

While the U.S. lowers reserve requirements to try to heat up its own economy, China raises them. The yuan has gone up 11% against the dollar this year; still, the economy is growing at a breakneck speed. Other nations face similar problems - inflation, out-of-control speculation, and growth. They are raising rates and talking about breaking the link with the dollar - letting their currencies rise to offset the flood of greenbacks and dampen demand for their own exports.

Meanwhile, the Bernanke monetary policy turns out to be just the wrong thing for the U.S.A. too. The Fed pumps out a flood of liquidity…but that money no longer raises up the US economy and US asset prices. Instead, it raises prices all over the world. And now, thanks to globalized markets, U.S. consumers must pay world prices for their corn…and their cars…and their oil…and everything else. And those prices are going up.

Nominal commodity prices are nearing a 35- year high. The oil price has already reached an all-time high in both nominal and real terms. Inflation forecasts have practically doubled for the entire world - just in the last 12 months.

Thus is the weird world getting weirder. America faces a slump…with prices still going up. It is like the stagflation of the '70s…but worse. Back then, Americans had only a third the debt they have now…and back then, the Fed could still bring inflation to heel, by raising rates and suppressing U.S. demand. Now, even if the fellow next door stops using so much oil, there are 20 fellows on the other side of the globe who will still use more. Could it stop inflation now? We don't know, but our bet is that there will be a lot of casualties before we find out.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.